Interest Rate Model
Pawnfi’s interest rate strategy is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate U.
U is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through allocating user incentivizes to support liquidity:
When capital is sufficient: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage repayments for loans and additional supplies.
Normal Model
The supplying rate's calculation depends on something called an interest rate model — the algorithmic model to determine a money market's demand and supply rates.
This interest rate model takes in two parameters:
Base rate per year, the minimum borrowing rate
Multiplier per year, the rate of increase in interest rate with respect to utilization
Borrow Rate
= Base + Multiplier x Utilization Rate
Supply Rate
= Borrow Rate x (1-Reserve Factor) x Utilization Rate
Jump Rate Model
Liquidity risk materializes when utilization is high, its becomes more problematic as U gets closer to 100%. To tailor the model to this constraint, some markets follow what is known as the "Jump Rate model”. This model has the standard parameters:
Base rate per year, the minimum demand rate
Multiplier per year, the rate of increase in interest rate with respect to utilization
but it also introduces two new parameters:
Kink, the point in the model in which the model follows the jump multiplier
Jump Multiplier per year, the rate of increase in interest rate with respect to utilization after the "Kink"
Borrow Rate
= Base + Multiplier x Min(Utilization Rate, Kink) + Jump Multiplier x Max(Utilization Rate - Kink, 0)
Supply Rate
= Borrow Rate x (1-Reserve Factor) x Utilization Rate
Currently all the token markets are designed as Jump Rate Model.
Latest Interest Rate Table
| Name | Symbol | Interest Rate Model | Base | Multiplier | Kink | Jump Multiplier | Reserve Factor |
|---|---|---|---|---|---|---|---|
Mainstream Coins | |||||||
Tether USD | USDT | Jump Rate Model | 0% | 5% | 80% | 109% | 7.5% |
USD Coin | USDC | Jump Rate Model | 0% | 5% | 80% | 109% | 7.5% |
DAI | DAI | Jump Rate Model | 0% | 5% | 80% | 109% | 15% |
Ethereum | ETH | Jump Rate Model | 2% | 18% | 80% | 100% | 20% |
Wrapped BTC | WBTC | Jump Rate Model | 2% | 22.5% | 80% | 100% | 20% |
Lido Staked Ethereum | stETH | Jump Rate Model | 2% | 18% | 75% | 100% | 20% |
Staked Ape Coin | sAPE | N/A | N/A | N/A | N/A | N/A | N/A |
P-Tokens | |||||||
Bored Ape Yacht Club | P-BAYC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |
Mutant Ape Yacht Club | P-MAYC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |
Bored Ape Kennel Club | P-BAKC | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |
Azuki | P-AZUKI | Jump Rate Model | 2% | 22.5% | 70% | 150% | 20% |
Last updated